Asha Sharma announces massive Xbox overhaul with more layoffs in tow

Xbox president Asha Sharma has given Sony some breathing room by diverting the topic away from PlayStation's disastrous decisions of the past week. She announced sweeping changes for the Xbox platform. Described as "the most significant restructure in Xbox history," the overhaul will see approximately 3,200 jobs eliminated throughout fiscal year 2027, with around 1,600 positions cut immediately. Sharma says the layoffs were the result of "careful consideration", stressing that the decisions were not a reflection of their talent or dedication.

The Xbox president admits its current business model is no longer sustainable, with profit margins reportedly sitting at just one-third to one-tenth of those generated by comparable platform and publishing businesses. Sharma also pointed to weaker-than-expected growth for Game Pass and the industry's ongoing hardware slowdown as key reasons behind the restructuring.

The memo outlines a three-pronged strategy to "reset Xbox", with the first focusing on content. Sharma said Microsoft expanded its first-party studio portfolio aggressively over the past several years but concluded that not every studio was the right fit. In addition, four studios will either become independent or transition to new ownership.

Ninja Theory, Compulsion Games, Undead Labs and Double Fine are safe...

As part of the changes, Compulsion Games and Double Fine Productions will return to independent ownership while retaining their intellectual property and existing game catalogues. Meanwhile, Ninja Theory and Undead Labs are expected to transition to new owners with funding in place to complete future projects, including Senua and State of Decay 3.

Most importantly, no previously announced first-party games have been cancelled. That means Fable, Clockwork Revolution, and others, might actually see the light of day. The platform already suffers from lack of exclusives, and Microsoft will need all the games it can get to keep people engaged in the Xbox ecosystem. 

..But Arkane Lyon might not be

Microsoft also confirmed that Arkane's French operations are reviewing strategic options. Without a buyer lined up, the studio's future looks uncertain. With Arkane Austin already shuttered in one of Microsoft's numerous haircuts, the Lyon studio's closure would result in an incalculable loss for the gaming industry.

It is pertinent to note that the 3,200 layoffs may not include employees of the above-mentioned studios and may focus more on cutting management bloat. Sharma adds that some teams currently operate with as many as 14 layers of management- an unusually high number for companies that make games.

The restructuring plan will slim the organization to no more than five management layers, simplify workflows, consolidate engineering resources, and reduce vendor spending by 50% to improve efficiency.Finally, Microsoft will also appoint a new Chief Operating Officer position with oversight of content, hardware, platform, and services. Helen Chiang, who previously led Mojang and played a key role in Xbox Live, has been promoted to the role.

Despite the scale of the restructuring, Sharma maintains that the changes are intended to position Xbox for long-term growth rather than contraction. She says Microsoft expects to invest in Xbox at record levels this year while focusing spending more strategically, with the goal of returning the gaming business to growth in 2027.

While reducing management bloat will undoubtedly help in the short term, pressing issues such as the lack of exclusives, bloated game budgets and multi-year game development cycles will need to be eventually addressed, and one can only hope that Asha and Helen are up to the task. Furthermore, marketing blunders, such as the "this is an Xbox", campaign need to be identified and shut down before they ever see the light of day.